DENTAL MARKET REVIEW 2019 - christie.com - Christie & Co
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christie.com DENTAL MARKET REVIEW 2019
2 Dental Market Review 2019 | christie.com
INTRODUCTION Welcome to the latest edition of Dental Market Review 2019
The dental sector continues to be one of the most
active in which Christie & Co operates.
One of the undoubted ‘green light’ sectors for lenders, there There is a plethora of established and new challenger banks
is a plethora of established and new challenger banks keen
to support the sector which should underpin activity in the keen to support the sector.
medium term. In a less certain political landscape, investors and
bank money tends to follow regulated, needs-driven sectors
where levels of business impairment have historically been low.
Dentistry certainly delivers on that criteria, as well as offering
business owners opportunities for organic growth through
the introduction of private dentistry and a flexible skills mix at
practice level.
Our expanding specialist team reports encouraging levels of
activity across the UK and has been involved in some of the
highest profile projects, from a valuation and consultancy
c. 3,000 The need for accurate advice
backed up by market leading data
perspective. Total number of registered has never been more important,
applicants looking to buy a
In an increasingly sophisticated and rapidly evolving sector, the dental practice. creating high demand for our
need for accurate advice backed up by market leading data, has
never been more important.
consultancy services.
The UK Dental Landscape and Workforce
4 Dental Market Review 2019 | christie.com
UK DENTAL
MARKET The sector continues to consolidate although it is still highly fragmented
COMPOSITION
KEY OBSERVATIONS MARKET COMPOSITION BY NUMBER OF PRACTICES
Despite considerable M&A activity across the market, c. 12,500 1,500 2,500
corporates still only account for around 13% of the
total practices in the UK.
8,488
A ‘mid-market’ is emerging as companies such as
Dentex, Dental Partners and Perfect Smile move
towards (or through) the 50 site mark.
There has been a surge of start-ups, with the aim of
growing rapidly to become a significant platform size
in order to be attractive for acquisition in the future.
Further private equity activity in the sector emerges Total Corporate Small Groups Independent
with Apposite Capital and G Square Capital making
recent investments in the sector.
CORPORATE OPERATORS BY OWNERSHIP
My Dentist (606) Dental Partners (39)
Bupa (458) Perfect Smile (38)
Portman (106) Smile (27)
Bhandal (85)* Dental Care Group (26)
Rodericks (82) Genix (25)
Colosseum (79) Damira (23)
Dentex (55)
*Estimate
5 Dental Market Review 2019 | christie.com
THE UK DENTAL
WORKFORCE
The majority of the 116.2k registered dental GDC REGISTRANTS BY DENTAL GROUPING 2017
professionals in the UK are dental nurses (49%)
with the next largest group being dentists (36%).
In total there are 41,705 dentists registered in the
UK, which represents an average of one dentist per
1,600 of the UK population as at 2016.
92% of non-dentist dental care professionals
(DCPs) are female, and 8% are male.
The majority of dentists are aged 31- 40 years with
only 7% aged 61 years and over. 3,684 6,447 7,123 41,705 57,214
Therapists Technicians Hygienists Dentists Dental Nurses
AGE PROFILE OF UK DENTISTS
30%
51% 24%
of dentists are male
20% 19%
49%
are female
4%
3%
22-30 31-40 41-50 51-60 61-65 Over 65
Age (years)
Source: General Dental Council, Annual Report 2017
Key Features of the UK Dental Market
7 Dental Market Review 2019 | christie.com
THE DENTAL MARKET
OVER THE LAST 12 Key highlights
MONTHS
The market is increasingly quality Recruitment and retention of Continued private equity interest and
driven and geographically sensitive associates is directly impacting the investment in the sector
Continued challenges with associate recruitment and performance of NHS contracts There continues to be huge interest in the dental sector
retention, particularly amongst corporate purchasers, has A two-tier market is emerging in the NHS sector. Well from a range of private equity investors. At the top of
driven demand towards urban locations. Independent located and/or run practices demonstrating consistent the market, Livingbridge exited its highly successful
buyers are less sensitive to this as they are generally UDA performance are selling for a significant premium. investment in Portman to be replaced by Core Equity
working principals. Whereas those in remote locations with a history of Holdings, signalling its ambition to support the next phase
underperformance are now being sold based on actual of growth.
performance rather than baseline contract values. This completed the ‘marquee’ transactions at the top of
Average price increases level out An increase in running costs is compressing net the market following investments made by Rodericks
profit margins.
although better quality practices and Colosseum in the previous year. Small and mid cap
private equity is therefore turning to smaller platform
command premium prices opportunities to gain a foothold into the market, as
A shift in demand towards private
In the NHS sector, offers are increasingly based on actual evidenced by Apposite Capital’s investment in Riverdale
contract performance as opposed to baseline contract
dentistry and subsequent acquisition of Alpha Vitality and G Square
value. Both buyers and lenders are more sensitive to claw There has been a discernible shift in demand towards Capital’s investment in Dental Care Group.
back and breach notices. Local area teams are taking the private sector, particularly by corporate and multiple
an increasingly hard line when the 4% performance practice owners. This is to balance the risk of forthcoming
threshold is breached. phased contract reforms, to mitigate the net reduction in
NHS funding and to drive revenue yield at practice level.
Sector consolidation continues in the
mid-market Banks continue to support the sector Compared to many other
in favour of other asset classes
The last 18-24 months have seen an increase of dental business sectors, dentistry offers
start-ups. We estimate that there are now in excess of 400
multiple practice owners in the UK (2+ sites) which is an
Compared to many other business sectors, dentistry a safe haven for banks and other
offers a safe haven for banks and other investors. Whilst
increase of some 50% from 2015. The very keen interest private dentistry can be considered discretionary, the investors.
in the dental sector from private equity, family trusts restriction of treatments on the NHS means that even
and other investors is encouraging the growth of these in a challenging economy, demand for private dental
groups, who anticipate an opportunity to exit at treatment remains robust.
enhanced value.8 Dental Market Review 2019 | christie.com Alternative ‘partnership’ structures A number of companies are now offering sellers of dental practices a financial stake after completion. This can align the interests of both buyer and seller and can be an effective way of creating additional value in a rising market. Despite contract reforms due in 2020, there is no reduction in demand from first time buyers for smaller single site NHS practices After a number of years of pilots and prototypes, the ‘new’ dental contract is currently planned to be phased in during 2020. It is yet to be confirmed how many practices will be affected, but it seems that the first phase of conversions may be on a voluntary basis to establish proof of concept. Crucially, there is no suggestion that GDS contracts will be time limited nor will UDA values be reduced. We expect continued high demand for mixed practices, particularly from independents who are essentially ‘buying a job’ as owners and principals. Hiatus in the orthodontic sector until the outcome of the current procurement process is known A significant change in NHS orthodontic provision has taken place in the South of England over the last few months. This is as a result of the implementation of the NHS orthodontic commissioning guide which led to mandatory tendering for NHS orthodontic contracts. The size and scale of the re-procurement has made it a highly competitive process. A large number of existing NHS practices in the South, which have lost or not continued with their orthodontic contracts, are currently in the process of winding down and transferring their waiting lists of patients to new providers. We are already witnessing the first ‘new’ orthodontic practices being marketed with enhanced contracts of 10 (7+3) years. These offer greater security than previously, albeit at lower UOA values and are proving extremely sought after.
Christie & Co Key Recent Activity
10 Dental Market Review 2019 | christie.com
SOLD One of the UK’s leading independent dental groups sold to Alliance Dental Care
HOUSTON DENTAL GROUP
Established in 1990 as a single site practice, Houston Dental Group has evolved to be one of the leading independent dental
groups in the UK, with 44 surgeries across North Somerset and the wider South West region.
KEY HIGHLIGHTS
Ceri and David Houston, owners of the group, approached Christie & Co for preliminary advice. As the Houston Group’s
Confidentially marketed, the business attracted valuers, we had an excellent knowledge of the business, resulting in us being appointed to market the business in 2018.
significant interest from dental and financial buyers. The purchaser, Alliance Dental Care, owns and operates a small, high quality group of practices situated in Hertfordshire.
The group is owned by Dr Punita Taneja and Dr Anshul Pangotra, two highly experienced and qualified dentists. The Houston
A number of substantial offers were received
Group is a perfect fit geographically and propels Alliance to the next stage of its development as a force in UK dentistry.
resulting in the sale of the business and
property portfolio.
We had regular occasion to call upon
the invaluable assistance, sound advice
and wise counsel of Christie & Co. We
always found them to be professional,
knowledgeable with insight into I have known the Dental team
the market. There was always a at Christie & Co for several years.
willingness to support our position When they approached me with
and the reassuring desire to achieve the opportunity to acquire the
the best outcome on our behalf. The Houston Group, I immediately felt
quality and breadth of the service we that it would a perfect acquisition
received would ensure our strong for Alliance Dental. Whilst the
and unreserved recommendation sale process was undoubtedly
of Christie & Co to any colleague competitive, they respected my
contemplating selling a dental practice. needs as a purchaser, enabling us
to agree a deal that worked well for
everyone. Alliance is proud to be the
David Houston new owner of the Houston Group.
Anshul Pangotra11 Dental Market Review 2019 | christie.com
High quality dental group sold to BUPA Dental Care SOLD
TOTAL DENTAL CARE
Total Dental Care comprises four practices owned and operated by Anthony and Michael Zybutz, located across London
and the South East of England.
KEY HIGHLIGHTS
Originating in Camden in 1992, the business has since expanded with practices now in Folkestone, Dover, Peterborough
and Harley Street. Three of the practices feature TDC implant centres, offering award winning, same day implant services. A detailed Information Memorandum was produced which
Christie & Co met Anthony and Michael in 2016. It was advised that the sale of the entire group was likely to achieve presented this quality business to potential buyers.
optimum returns and in early 2018, we were instructed to approach a select group of potential purchasers.
An online data room enabled prospective purchasers to
undertake due diligence.
Several offers were received and BUPA Dental Care
We were comfortable that Christie & Co had the network and capability to manage our selected as the preferred bidder.
business sale. The sale process was fairly complicated, though we felt fully supported
throughout. We are delighted with the outcome and would recommend the Christie & Co
Dental team to anybody considering selling a group of practices.
Michael Zybutz
It’s not often that a dental business
of this quality becomes available
for sale. Demand for small groups is
extremely strong from dental groups
and private equity investors.12 Dental Market Review 2019 | christie.com
VALUATION/ A summary of the high profile valuation and advisory activity
ADVISORY carried out by Christie & Co
ACTIVITY
164 commercial Red Book Compliant valuations with Continued professional rental advice provided in support 111 commercial Red Book Compliant valuations with a
a combined value of £205m. of the ongoing growth of the group. combined value of £128m.
Christie & Co’s Consultancy team has provided buy side
Continued professional advice provided in support of Ongoing valuation advice provided in support of group
due diligence advice in connection with several of the
lending within the dental sector. expansion.
most notable recent corporate transactions.13 Dental Market Review 2019 | christie.com
KEY DEALS A summary of some of the high profile deals brokered by Christie & Co
Caledonian Dental Care, Perth Breeze Family Dental Care, Fife
• 19 surgery practice • Portfolio of three dental practices
Over • Largest dental transaction in Scotland • Multiple offers received
£320m • Sold to Portman Dental Care • Sold to an independent operator
Brian G Easton Dental Practice, Linlithgow
of dental businesses advised • Four surgery, mixed income practice
on, valued or sold in the last • Potential to add further surgeries
• Sold off market to existing associate
12 months
Withers & Ripley Dental Surgery,
Project Prime, Merseyside
Bolton, Greater Manchester
• High turnover NHS practice • Two high turnover NHS practices
• Generated multiple offers (many above • Multiple offers received
guide price) • Sold to Dental Partners
• Sold to an expanding regional group
Metamorphosis Orthodontics, Garvey & Hicks / Fulwell Dental Practice,
London Sunderland
• Specialist private orthodontic practice • Three surgery, mixed income practice
• Multiple offers received • Multiple offers received
• Landmark orthodontic sale • Sold to an experienced operatorUK Dental Industry
15 Dental Market Review 2019 | christie.com
CHANGES IN THE Key themes discussed in the report
DENTAL WORKFORCE
In late 2018 our Consultancy team produced a leading research
document which considered how changes in the workforce and
external forces, including Brexit, are impacting the dental sector. Number and role of other Pay, UDA rates
On this page we summarise some of the key findings, a copy of the dental care professionals
full report is available for download from our website. Other bespoke
reports that can be produced for clients include market studies,
benchmarking reports and a range of commercial due
diligence services.
THE DENTAL INDUSTRY Qualification trends Brexit
2018 Staffing, Brexit and
The Dentist Shortage
Regional trends/where Number of
dentists want to live dentists
For a full copy of the report visit christie.com16 Dental Market Review 2019 | christie.com
PRICE TRENDS An increase in average prices, but not across all market segments
As highlighted in our most recent Business MOVEMENT IN AVERAGE PRICES, YEAR ON YEAR
Outlook report we saw an average price increase of:
14.9%
5.2% 12.3%
However, when segmented by geography and practice
type/size, it is apparent that price increases were not
universal.
5.2%
Prices for larger private practices have increased at the
fastest rate, albeit from a low base.
Mixed practices are still extremely sought after, but 2016 2017 2018
location is now more important.17 Dental Market Review 2019 | christie.com
OPERATIONAL Analysis from our valuation and brokerage instructions confirms
BENCHMARKING cost increases in all market segments
Pricing flexibility in the private sector enables NHS (+80% INCOME) Low Mean High
cost increases to be absorbed.
UDA output (per associate) 2,500 6,750 11,000
Challenges in the recruitment market cause
continued associate cost inflation. Net UDA rate (per associate) 9.25 10.85 14
A lack of therapists restricts better utilisation Labs + materials (% revenue) 5.7 12 15
of skills mix at practice level.
Employed staff (% revenue) 15 18 25
UDA pay rates vary significantly across the
sector and materially impact profitability. EBITDA (%) 15 21 28
(Assumes ‘associate led’ model)
There are PRIVATE (+80% INCOME) Low Mean High
challenges to cost Gross income per associate 150,000 230,000 775,000
management in Associate pay scale (%) 30* 43 55*
both private and Labs + materials (% revenue) 11.5 14 21*
NHS segments. Employed staff (% revenue) 13 17 24
EBITDA (%) 10 18 23
(Assumes ‘associate led’ model)
* Low + high reflects specialist work undertaken18 Dental Market Review 2019 | christie.com
CURRENT EBITDA
MULTIPLES BY Multiples of EBITDA increase with a clear premium paid for dental groups
REGION
Average associate led Average owner operated
The heat maps and charts set out our analysis of dental practice EBITDA multiples practice EBITDA multiples
4.20
practice sales over the last 12 months and new deals agreed
in the same period to give the most up to date reading on
the market. Practices have been grouped with reference to
geography, type and size. We have also separated smaller
6.85
UK average UK average
practices with a turnover of less than £600,000 (which are
likely to be owner/principal run) from larger, associate led
practices to reflect the difference in operating margins and
3.75
multiples paid. Smaller practices, particularly those with 6.5
an NHS contract still tend to be priced by purchasers on a
multiple of turnover, whereas buyers of larger practices are
generally more sophisticated and adopt a multiple of EBITDA.
The EBITDA used to calculate the multiple paid reflects
the actual performance of the business. We make no 3.75
adjustments to staff costs or associate rates unless the 4.0
vendor has specifically committed to adjusting the cost base 7.0
to this level prior to completion. This follows the market 6.25
which is particularly sensitive to any such adjustments. 3.75
The multiples expressed are averages and representative
(generally) of the market, however, can be influenced by
factors like: 4.0
6.1
• The sample size in a particular region or practice type 7.4 4.0
6.6 4.5
• An EBITDA which is significantly higher/lower than normal 6.1 3.5
• A purchaser with a special interest in acquiring a particular 5.5
practice and who is willing to pay a premium 7.7
7.0 4.0 4.65
7.4
• The timeline of a sale being constrained due to impairment
or other reasons19 Dental Market Review 2019 | christie.com
CURRENT EBITDA Multiples paid for larger private practices now mirror those
MULTIPLES BY PRACTICE achieved for their NHS counterparts
SIZE AND TYPE
Multiples have generally increased across the board, The average multiples of EBITDA shown for various locations and practice types
sometimes simply due to prices remaining static and
relate to single practice sales.
profits falling.
Multiples paid for larger, associate led practices have The significant interest in the sector from consolidators and private equity investors, has led to a surge in demand for dental
increased at a faster rate. This reflects a lack of supply groups of all sizes, which now sell for a significant premium to single practices.
and an increase in the buyer pool for this type of practice.
This reflects scarcity value and the arbitrage opportunity that currently exists.
Generally, multiples increase according to practice size
with a clear premium being paid for group opportunities.
Average EBITDA Multiple by Practice Type Average EBITDA Multiple by Number of Chairs
Mixed
Associate led 7.2
1 to 2 6 or more
Owner operated 5.2 Owner operated 4.0 Associate led 7.8
Private 3 to 5
Associate led 7.1 Associate led 7.3
Owner operated 4.0 Owner operated 5.620 Dental Market Review 2019 | christie.com
CHRISTIE An update on the current lending market for dental practices
FINANCE
The dental market continues to receive a Lenders no longer provide funding to to revalue a portfolio and are scrutinising original lending
covenants.
positive reception from lenders dentists without carrying out extensive
However, many have witnessed a rapidly changing due diligence Should these covenants be breached, certain lenders
may apply pressure on their customers to reorganise their
landscape in recent years and have adapted accordingly. Whether a target practice is NHS, mixed or private, lenders portfolio. Examples of this would be to introduce more
They have observed the rise of the private dental market are carefully investigating the business, whilst looking cash, sell to reduce the level of borrowing or strongly
and the willingness of patients to pay for their own closely at the buyer. encourage them to refinance.
enhanced treatments, rather than relying on the NHS. Lenders want to understand how a buyer is looking to
Most private practices and dentists see a steady, increasing operate the business; the level of management experience
they have; how many days they plan to work there and
For first time buyer associates or group
level of fee income without the reliance of plan income.
Previously, lenders have provided preferential lending development plans for the business. It is the aim of operators
to NHS-based practices, but now treat non-plan private any lender to ensure their investment is secure, in turn Christie Finance has a team of specialist dental brokers
practices in the same manner. providing the buyer with comfort around their substantial across the UK, who understand both the dental sector
investment. itself and exactly what lenders are looking for. You often
Their only stipulation is to ensure that the outgoing,
income-billing principal has an agreed tie-in for a suitable For existing practice owners, particularly group operators, only get one opportunity with a lender, so your approach
period of time, dependent on the patient list. certain lenders, due to their own internal restrictions, have needs to be right first time.
become ever more cautious. Banks are enforcing the right
Christie Finance instructed to
secure in excess of
David Ward
Senior Director
£40,000,000
of finance for the medical sector in 2018
- Head of Medical Finance21 Dental Market Review 2019 | christie.com
CONTACTS Our Dental Team
CORPORATE SERVICES
Simon Hughes Paul Graham
Our specialist Dental team offers a Managing Director - Medical Head of Dental
T: 0776 8646 983 T: 07739 876 621
full range of services aimed at larger E: simon.hughes@christie.com E: paul.graham@christie.com
independent dental practice owners,
multiples and corporate operators.
These include:
Acquisition & Disposals Advice
Oliver Snowden Jonathan Watson Steve Darbon Olivia Allison
RICS Accredited Valuations for Loan Security Director (South & South West) Director (North) Associate Director (Greater London) Business Agent (North)
T: 07711 767 094 T: 07713 061 582 T: 07702 809 564 T: 07702 803 356
Expert Witness / Dispute Resolution E: oliver.snowden@christie.com E: jonathan.watson@christie.com E: steve.darbon@christie.com E: olivia.allison@christie.com
Landlord & Tenant Services
Benchmarking Reports
Strategic Business Advice / Market Mapping
Commercial Due Diligence
Market Research
Tony Walker Steve O’Connor Joel Mannix
Business Agent Business Agent Business Agent
(South & South East) (Midlands & Anglia) (Scotland & North East)
T: 07736 620 843 T: 07732 601 748 T: 07764 241 691
E: tony.walker@christie.com E: steve.oconnor@christie.com E: joel.mannix@christie.com22 Dental Market Review 2019 | christie.com
Valuation Team
We have a team of Chartered Surveyors and RICS Registered Valuers dedicated to the dental sector. Working closely
with our transactional colleagues we are able to draw on current market sentiment and comparable evidence.
With access to comprehensive market data, we are in a unique position to benchmark both the business performance and
practice value, ensuring reports and professional advice is always well researched and well informed.
We are recognised as leading valuers by all the high street banks, as well as most of the other specialist lending
institutions. Much of the work we undertake is for loan security, accounts and balance sheet, acquisition, disposal, dispute
resolution, statutory compensation and taxation purposes.
Chris Vowles Jonathan Barnett
FRICS - Head of Medical Valuation (Midlands) Director (South West)
T: 07791 183 966 T: 07764 241 282
E: christopher.vowles@christie.com E: jonathan.barnett@christie.com
Rachel Seward Bethany Hall
Director (South West) Senior Valuer (South)
T: 07720 948 972 T: 07703 715 540
E: rachel.seward@christie.com E: bethany.hall@christie.com
Hayley Parker Oliver Watson
Associate Director (Midlands & Anglia) Valuer (South East)
T: 07590 488 480 T: 07711 767 441
E: hayley.parker@christie.com E: oliver.watson@christie.com
Joe Swiers Jamie Savage
Associate Director (North) Associate Director (Scotland)
T: 07791 979 345 T: 07840 022 116
E: joe.swiers@christie.com E: jamie.savage@christie.com23 Dental Market Review 2019 | christie.com
Consultancy Team
Christie & Co’s dental consultancy proposition is unique, with the team advising on some
of the largest transactions in the sector whilst providing bespoke research to a number of
operators, investors and private equity companies.
Key strengths include our market leading level of proprietary data, sophisticated analytic tools Mike Hodges
and our granular understanding of the dental sector. The latter is reinforced by a close working Managing Director - Healthcare Consultancy
relationship between consultancy and colleagues within our dental brokerage and valuation
T: 07764 241 300
teams, enabling clients to benefit from high quality advice combining data with in depth market
E: michael.hodges@christie.com
insight.
Our team consists of a high-calibre group of professionals with an extensive and diverse range
of analytical, financial, operational and property-based skills. The team was responsible for the
production of Christie & Co’s ground breaking research report on Staffing, Brexit and the Dentist
Shortage, published in autumn 2018 and widely reported across national and trade media. David Oirschot
Senior Consultant
We specialise in tailoring bespoke outputs to meet client needs. Typical types of assignment
include commercial, research and property due diligence, market analysis, market studies and T: 07732 602 267
business planning. E: david.oirschot@christie.com
Finance Team
Christie Finance is a specialist commercial finance broker, helping dental practice operators
to develop and grow their business for over 40 years. As an independent broker, we are not
tied to any particular lender, knowing which ones to approach to source you the commercial David Ward Craig Dickson
mortgage you require. Senior Director (Midlands & London) Director (Scotland)
T: 07815 803 262 T: 07713 061 621
As a member of the Christie & Co Network, we are known and respected throughout the E: david.ward@christiefinance.com E: craig.dickson@christiefinance.com
dental sector, meaning our clients are taken seriously by lenders. Whether you are a first time
buyer, an existing operator, or looking to release capital for a new venture, we can guide you
through the process to secure competitive funding.
Our network of five regional hubs across the UK enables us to combine a local knowledge Jawad Anjum Gary Boyce
with national insight. A Christie Finance dental specialist local to you will deal personally with Associate Director (North) Director (South West)
every aspect of your commercial mortgage application. T: 07791 979 719 T: 07974 800 752
E: jawad.anjum@christiefinance.com E: gary.boyce@christiefinance.com
Our Christie Finance Unsecured division can work with you to secure fast and flexible finance,
offering a straightforward solution to covering costs of key dental practice investment.
All funding is subject to status.
Shaun Watts
RCC Business Mortgages plc, trading as Christie Finance, is authorised and regulated by the Financial Con- Director - Unsecured (UK wide)
duct Authority. Our Firm Reference number is 709982. Not all types of business we undertake is authorised T: 07526 175 855
and regulated by the Financial Conduct Authority. Christie Finance operate as an intermediary and are not a
principal lender.
E: shaun.watts@christiefinance.comchristie.com
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